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The Diablo is in the details | This Week in Business

Why don't free-to-play publishers want to talk about how their business model actually works?

I'll get to the meat of this week's column in a minute, but there was some big news for the site this week that really needs to be addressed first.

In case you missed it, parent ReedPop is running E3 2023, and our own head of games B2B Chris Dring is involved in the planning.

QUOTE | "We discussed ways to embrace everything that takes place during E3 week... whether they're part of the show floor or not. And that includes things like the PC Gamer Show, and Devolver Digital's car park, and yes, Geoff Keighley's Summer Games Fest. Because to those watching at home, all of that is E3." - Chris Dring, in an editorial sharing some thoughts about what needs to be done with the show.

Chris and the rest of the team have a significant challenge ahead of them, but I can't think of another group of people better suited to take those challenges on.

Elsewhere in the industry this week, Blizzard president Mike Ybarra spoke with the Los Angeles Times about trying to fix the company's well-documented and actively litigated cultural problems. He also addressed monetization complaints about recently released mobile title Diablo Immortal.

QUOTE | "When we think about monetization, at the very highest level it was, 'How do we give a free Diablo experience to hundreds of millions of people, where they can literally do 99.5% of everything in the game?' The monetization comes in at the end game. The philosophy was always to lead with great gameplay and make sure that hundreds of millions of people can go through the whole campaign without any costs." - Ybarra explains Blizzard's approach to designing Diablo Immortal's monetization model.

I understand the need to put the most positive face possible on basically any aspect of the business, but I find it particularly egregious with free-to-play games because the companies making them have always framed it as an almost altruistic business model because it lets so many people enjoy a game free of charge.

At the same time, the people who play the games understand just how ruthless the model can be. One YouTuber spent about $15,500 on Diablo Immortal loot boxes before getting one 5-star Legendary Gem, one of the game's rarest items. Another calculated that it would cost more than $110,000 to max out a character. Is that accurate? I have absolutely no idea, because the monetization systems are both convoluted and opaque, by design.

Maxing out one character from each class would cost nearly $666,000, according to one estimate

Like many in the free-to-play space, the execs at Activision Blizzard don't want players to know what they are getting in exchange for their money. They don't want players to understand just how much they have spent, or how much more they will need to spend until they have what they want. They want to slant the playing field against players being able to make informed purchasing decisions. They push and prod players with limited time offers that incentivize them not to think too carefully about the real-world money they are spending for a mish-mash of virtual currencies or in-game items that will give them a random selection of things that may or may not include the thing they actually want. But maybe the game will buy the unwanted things back from them for a fraction of the virtual currency paid, adding another bit of math for players to do before they have anything more than a fuzzy notion of how much anything costs.

"Like many in the free-to-play space, the execs at Activision Blizzard don't want players to know what they are getting in exchange for their money"

As much as Activision Blizzard may want to run this business model, they don't actually want to talk about what makes the business model work, which is that relative handful of players who are not playing for free. That relative handful of players are in fact throwing outrageous amounts of money at the game.

Execs like Ybarra don't like to talk about how small that minority of people shouldering the burden of game development really is. They don't even tell their investors about it.

QUOTE | "The increasing importance of free-to-play games to our business exposes us to the risks of that business model, including the dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given game." - Activision Blizzard in the "Risk Factors" section of its latest annual report.

It's a tightrope many companies walk because they do want to brag to investors about how astoundingly lucrative these businesses can be, but at the same time they don't want to brag too loudly lest they face some mix of player backlash and legislative scrutiny.

Take EA, for example. It reported Ultimate Team game mode revenues in its annual report for years, but after the press started reporting on how its deeply contentious loot box scheme was responsible for almost one-third of the company's business, it decided a blind box approach would be more thematically appropriate.

EA is vague on how much it earns from Ultimate Team just like it's vague on loot box probabilities for rare cards

QUOTE | "Live services net revenue generated from extra content purchased within Ultimate Team, a substantial portion of which was derived from FIFA Ultimate Team, and for our Apex Legends franchise, is material to our business." - What EA said in its most recent annual report in the place where it used to talk about how much Ultimate Team made.

It's not uncommon for companies deeply invested in free-to-play to have average revenue or bookings per user as a key metric, but Activision Blizzard -- which is increasingly driven by free-to-play games like Call of Duty Mobile and Warzone, Diablo Immortal, Hearthstone, and the entire King catalog of games -- is content to simply reveal engagement figures like average monthly users.

That's actually shadier than Zynga, which has been the poster child for "evil free-to-play company" basically since its inception.

QUOTE | "Zynga's motto is 'Do Evil.' I would venture to say it is one of the most evil places I've run into, from a culture perspective and in its business approach. I've tried my best to make sure that friends don't let friends work at Zynga." - A former Zynga employee speaking with SF Weekly in 2010.

Up until its acquisition by Take-Two, Zynga was specifying average bookings per mobile user (ARBU) as well as how much of its player base was actually paying. In its final annual report before the acquisition, it reported only 3.8% of the player base was paying the company money, with an average bookings per user of $0.19.

That doesn't sound like much, but that ARBU number is daily. So over the course of a year, the average Zynga user spent $69.35 on the company's games, which also sounds fine, right? That's about the cost of a Madden, a Call of Duty, or any of those other traditional games that might be the only game someone buys in a year. But that includes all Zynga players whether they pay or not.

STAT | $1,825 - How much the average paying customer for Zynga spent on its games last year, which again is not a number they advertise or release themselves, but one we had to get by working backwards from the scraps of information they provide.

Keep in mind that's the average. Consider how many players were more judicious in their spending, who may have spent money once or twice and then bounced off, or those who churned out of a game early in the year or discovered a new game late in the year, and so didn't rack up a spectacular bill. All of those people who spent a little bit but didn't drop nearly two grand on Zynga's games are being offset by people who spent much, much more.

STAT | Less than half of 1% - The amount of Apple accounts that paid more than $450 for in-app purchases in games in the third quarter of 2017, accounting for almost 54% of all App Store billings in that span. If you're wondering why I would focus on a random Apple quarter from five years ago, it's because Apple doesn't exactly publicize this information and the only reason I have this stat is because it was included in the judge's ruling in the Epic v. Apple lawsuit.

Real whales are majestic creatures who deserve better than to be associated with this

Maybe this is why Ybarra -- like pretty much the entire free-to-play industry -- doesn't really want to talk about how the sausage is made. It raises questions about who is spending that money. And in some cases, it's going to be addicts or children, people who are particularly susceptible to the myriad psychological design tricks these games are built on, people who are being exploited, spending money they can't afford to keep pace on a digital treadmill.

But let's put aside the morally dubious qualities of loot box games for a minute. Let's pretend there are no addicts. Let's not think of the children, for once. Let's assume that every dollar spent on free-to-play loot boxes is freely given by a sensible, sober adult with the abundant wealth to direct to whatever niche pursuits they enjoy. Let's pretend it's just a bunch of super wealthy types, your Jeffs Bezos, your Elons Musk, and their knock-off dollar store equivalents.

When that's where the money comes from, that's who the games are designed around, and designed for. And as nice as it might be that Ybarra and Activision Blizzard will let poor people in the door, it's only because the unwashed masses are necessary to recruit more people and give meaning to the actions of their real customers, the whales.

Individual developers' best intentions aside, a game like Diablo Immortal is not made for the 99.5% who play for free, because it can't be. It exists for the big spenders. And in the absolute best-case scenario where there are no addicts or children being exploited, that means the game is made for less than half of 1% of players, comprised of what may be an even smaller fraction of society's 1%.

The rest of the week in review

STAT | Nearly $50 million - Diablo Immortal's first-month earnings, according to Appmagic.

QUOTE | "Children in video games are manipulated to purchase microtransactions" - A motion submitted to the Netherlands House of Representatives by a group of six political parties pushing the country to follow Belgium and ban loot boxes. The parties collectively have majorities in both the House of Representatives and the Senate.

QUOTE | "There is no 'All ages' age rating for games. Children are not allowed to play a game classified 'PG' unless and only when supervised by an adult noting that such a game may contain classifiable elements that may be disturbing or harmful for children." - The South African Film and Publication Board rolls out new restrictions on video game play.

Throw China's increasingly tightening restrictions into the mix and you've got a variety of different countries around the world showing a willingness to crackdown on gaming because of perceived failings of the industry to self-regulate. Once children in the US are protected from "threats" like history, drag queens, and doors, I wouldn't be surprised to see game restrictions re-enter the realm of public debate. Good thing the industry's got that Supreme Court precedent to fall back on and we all know how ironclad that is, right? Right?

QUOTE | "Over the past few years, we have been steadily moving more development resources towards the next entry in the Grand Theft Auto series -- understanding more than ever the need to exceed players' expectations and for this next entry to be the best it can possibly be -- and as a result, we are in the process of making some changes to how we support Red Dead Online." - Rockstar Games announces that it is done making major content updates for Red Dead Online. Four years is a pretty solid run for a predominantly single-player AAA blockbuster's online service, but it can't help but feel a little underwhelming compared to Grand Theft Auto Online, which will have been running for nine years as of October.

QUOTE | "Change will be a constant as we evolve our commerce business and launch new products through our blockchain group." - The first line of an email GameStop sent to staff this week, informing them of layoffs across the company (including at the Game Informer press outlet). The email went on to say they need to operate with "an intense owner's mentality," which is asking a lot for staff that are often overworked, don't actually have an ownership stake in the company, and may or may not have any interest in the pivot to blockchain.

QUOTE | "Big platforms will have to refrain from promoting their own interests, share their data with other businesses, enable more app stores. Because with size comes responsibility -- as a big platform, there are things you must do and things you cannot do." - Europe Fit for the Digital Age executive VP Margerethe Vestager welcomes the passage of the EU's Digital Services Act and Digital Markets Act, two attempts to set guidelines for the tech industry going forward.

QUOTE | "...evolving licensing agreements with content providers." - Sony's explanation as to why users who purchased Studio Canal video content on PlayStation Network will no longer be able to watch the things they bought after August 31. The list of films includes The Hunger Games, Saw, Paddington, John Wick, and about 300 others. Three cheers for our digital future, where you can never actually own anything!

QUOTE | "I've spoken to developers already who have worked on games that use language recognition APIs from companies that have either gone out of business themselves or have just gone past that product. So even if you have the game developer with their source code and everything else for the game, they still can't make it work because those services just don't exist anymore." - The Strong's Andrew Borman lays out one of numerous challenges facing game preservationists, most of them stemming from online connectivity and digital distribution. Three cheers for our digital future, where the creative output of an entire field is disposable almost by design!

STAT | Over $261,000 - As of this writing, the amount of money raised by the Indie Bundle for Abortion Funds on The collection of more than 1,100 games, soundtracks, comics, and other content includes titles like A Mortician's Tale, Hypnospace Outlaw, and Catlateral Damage, as well as (obviously) many more for a minimum $10 donation. Sometimes the digital future is Good, Actually!

QUOTE | "We weren't sure about how it would land with the community, and that's partly why we thought Early Access would be a good way to test what was possible. But because the response from the community was so aligned with 'Please don't do this,' we decided to make the change and roll it out as fast as we could." - Blackbird Interactive COO Eric Torin explains why the developer of the RTS Crossfire: Legion overhauled its monetization plans for the game just a month after its Early Access launch.

STAT | 8.7% - NPD Group analyst Mat Piscatella's projection for the decline in US consumer spending on video games over the course of 2022.

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Brendan Sinclair avatar
Brendan Sinclair: Brendan joined in 2012. Based in Toronto, Ontario, he was previously senior news editor at GameSpot.
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